Debt settlement may present its own financial challenges

By Peggy Stillwell on Jun 28th, 2010

Some consumers may consider debt settlement as an option to get out of a difficult financial situation, but they should know there are many risks involved in doing so.

In a recent piece for CBSMoneyWatch, Ray Martin noted that these firms may charge consumers high fees for the service, meaning it could take years to get out of debt. Furthermore, there is the danger that a person could get sued through following the advice of a debt settlement company.

"Since you stop making payments on your debts altogether, you’ll raise the legal ire of your creditors," Martin wrote.

Debt settlement works by having consumers stop paying what they owe to lenders. Instead, the money is collected in an account that will be used by the firm to negotiate down a person's debt.

Even when the option works, it will still prove to be damaging to a person's credit score, making it more difficult for them to qualify for a credit card or mortgage in the future.

Rather than doing so, Martin said consumers should consider going to a consumer credit counseling organization, which may be able to help them deal with their debts.

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